Financial Accounting Tools for Business Decision Making 10th Editionby Paul D Kimmel Test Bank by TBtutors

Type:

Test Bank

Resource:

Financial Accounting Tools for Business Decision Making

Edition:

10th Edition

Author(s):

Paul D. Kimmel Jerry J. Weygandt Jill E. Mitchell

CHAPTER 1 INTRODUCTION TO FINANCIAL STATEMENTS CHAPTER LEARNING OBJECTIVES 1. Identify the forms of business organization and the uses of accounting information. A sole proprietorship is a business owned by one person. A partnership is a business owned by two or more people associated as partners. A corporation is a separate legal entity for which evidence of ownership is provided by shares of stock. Internal users are managers who need accounting information to plan, organize, and run business operations. The primary external users are investors and creditors. Investors (stockholders) use accounting information to decide whether to buy, hold, or sell shares of a company’s stock. Creditors (suppliers and bankers) use accounting information to assess the risk of granting credit or loaning money to a business. Other groups who have an indirect interest in a business are taxing authorities, customers, labor unions, and regulatory agencies. 2. Explain the three principal types of business activity. Financing activities involve collecting the necessary funds to support the business. Investing activities involve acquiring the resources necessary to run the business. Operating activities involve putting the resources of the business into action to generate a profit. 3. Describe the four financial statements and how they are prepared. An income statement presents the revenues and expenses of a company for a specific period of time. A retained earnings statement summarizes the changes in retained earnings that have occurred for a specific period of time. A balance sheet reports the assets, liabilities, and stockholders’ equity of a business at a specific date. A statement of cash flows summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time. Assets are resources owned by a business. Liabilities are the debts and obligations of the business. Liabilities represent claims of creditors on the assets of the business. Stockholders’ equity represents the claims of owners on the assets of the business. Stockholders’ equity is subdivided into two parts: common stock and retained earnings. The basic accounting equation is Assets = Liabilities + Stockholders’ Equity. Within the annual report, the management discussion and analysis provides management’s interpretation of the company’s results and financial position as well as a discussion of plans for the future. Notes to the financial statements provide additional explanation or detail to make the financial statements more informative. The auditor’s report expresses an opinion as to whether the financial statements present fairly the company’s results of operations and financial position. *4. Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and private accounting, governmental, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement

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Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

Difficulties: Easy: 143 Medium: 101 Hard: 12

Question List by Section Business Organization and Accounting Information Uses: Forms of Business Organization; 47, 48, 202, 246 Sole Proprietorship: 5, 44, 49, 58, 59 Partnership: 1, 4, 46, 56 Corporation: 2, 3, 45, 50, 51, 52, 53, 55, 57, 233, 245 Hybrid Forms of Organization: 60, 61 Users and Uses of Financial Information: 6, 7, 11, 74, 87 Internal Users: 62, 63, 64, 75, 77, 82, 234 External Users: 8, 9, 10, 12, 65, 76, 78, 79, 80, 81, 83, 84, 85, 86, 88, 89 Data Analytics: 66, 67, 68, 69, 70, 235, 236 Ethics in Financial Reporting: 71, 72, 73, 237, 255 The Three Types of Business Activity: 97 Financing Activities: 13, 15, 18, 90, 91, 93, 94, 95, 96, 97, 102, 109, 117, 118, 119, 238 Investing Activities: 14, 16, 98, 99, 115, 116 Operating Activities: 17, 19, 20, 100, 101, 103, 104, 105, 106, 107, 108, 110, 111, 112, 113, 114 The Four Financial Statements: Income Statement: 21, 22, 23, 24,127, 128, 132, 133, 134, 138, 142, 143 Retained Earnings Statement: 120, 122, 123, 124, 125, 126, 129, 130, 131, 135, 137, 139, 140, 141, 144, 145, 146, 147, 148, 149, 150, 154, 164, 169, 178, 181, 252 Balance Sheet: 25, 27, 28, 29, 30, 31, 32, 33, 34, 35, 136, 151, 152, 153, 163, 165, 166, 168, 170, 173, 177, 179, 180, 182, 185, 186, 187, 188, 199, 200, 201, 207, 208, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 225, 229, 239, 240, 241, 253 Statement of Cash Flows: 26, 121, 171, 174, 183, 242, 249 Interrelationships of Statements: 155, 156, 157, 158, 159, 160, 161, 162, 167, 175, 176, 184, 250, 251, 256 Elements of an Annual Report: 36, 41, 192, 196, 197 Management Discussion and Analysis: 40, 191 Notes to the Financial Statements: 37, 42, 190, 193, 194, 198, 254 Auditor’s Report: 38, 39, 195

Introduction to Financial Statements

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TRUE-FALSE STATEMENTS 1.

A business organized as a separate legal entity and owned by stockholders is a partnership.

Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Partnership, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Corporate stockholders have no personal liability for the debts of the corporation.

Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Corporation, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

The liability of corporate stockholders is limited to the amount of their investment.

The majority of U.S. business is transacted by partnerships.

Ans: F, LO: 1, Bloom: K, Section: Business Organization and Accounting Information Uses, Subsection: Partnership, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Sole proprietorships in the United States generate more revenue than the other two forms of business enterprise.

Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Sole Proprietorship, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Owners of business firms are the only people who need accounting information.

Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Users and Uses of Financial Information, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Some users of accounting information are internal to the company while others are external.

Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Users and Uses of Financial Information, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Management of a business enterprise is the major external user of accounting information.

Ans: F, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

External users of accounting information include managers who plan, organize, and run a business.

10.

The accounting information needs and questions of external users vary considerably.

Ans: T, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

11.

Accounting communicates financial information about a business to both internal and external users.

12.

Two primary external users of accounting information are investors and creditors.

13.

Financing activities for corporations include borrowing money and selling shares of their own stock.

Ans: T, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

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Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

Investing activities involve collecting the necessary funds to support the business.

Ans: F, LO: 2, Section: The Three Types of Business Activity, Subsection: Investing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

15.

The purchase of equipment is an example of a financing activity.

Ans: F, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

16.

Assets are resources owned by a business that provide future services or benefits to the business.

Ans: T, LO: 2, Section: The Three Types of Business Activity, Subsection: Investing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

17.

Payments by the business to its owners are operating activities.

Ans: F, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

18.

The economic resources owned by a business are called stockholders’ equity.

Ans: F, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

19.

Operating activities involve putting the resources of the business into action to generate a profit.

Ans: T, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

20.

A business is usually involved in only two types of activities—financing and investing.

21.

Net income for the period is determined by subtracting expenses and dividends from revenues.

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

22.

A different set of financial statements is usually prepared for each user.

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

23.

The heading for an income statement prepared for the year ending December 31, 2025 will include the line “As of December 31, 2025.”

24.

Net income is another term for revenue.

25.

Cash is another term for stockholders’ equity.

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

26.

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Statement of Cash Flows, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 27.

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The balance sheet reports assets and claims to those assets at a specific point in time.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

28.

The basic accounting equation states that Assets = Liabilities.

29.

One way of stating the accounting equation is Assets + Liabilities = Stockholders’ Equity.

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

30.

The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: C, Difficulty: Easy, Minutes: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

31.

The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

32.

If the assets of a business total $150,000 and liabilities total $105,000, then its stockholders’ equity totals $45,000.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control Solution: $150,000 – $105,000 = $45,000 Total assets – Total liabilities

33.

If the assets owned by a business total $100,000 and liabilities total $65,000, then stockholders’ equity totals $25,000.

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control Solution: $100,000 - $65,000 = $35,000 Total assets – Total liabilities

34.

Claims of creditors and owners on the assets of a business are called liabilities.

35.

Creditors’ rights to assets supersede owners’ rights to the assets.

36.

All publicly traded U.S. companies must provide their stockholders with an annual report each year.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Elements of an Annual Report, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

37.

Information in the notes to the financial statements has to be quantifiable (numeric).

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Notes to the Financial Statements, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

38.

An auditor is an accounting professional who conducts an independent examination of a company’s financial statements.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Auditor’s Report, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Professional Demeanor, IMA: Reporting and Control

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Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

39.

The auditor’s report states the auditor’s opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.

40.

The management discussion and analysis (MD&A) section of an annual report covers various financial aspects of a company.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Management Discussion and Analysis, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Communication, IMA: Reporting and Control

41.

Explanatory notes and supporting schedules are an optional part of an annual report.

Ans: F, LO: 3, Section: The Four Financial Statements, Subsection: Elements of an Annual Report, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Communication, IMA: Reporting and Control

42.

Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.

Ans: T, LO: 3, Section: The Four Financial Statements, Subsection: Notes to the Financial Statements Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Communication, IMA: Reporting and Control

43.

The demand for accountants was increased by passage of the Sarbanes-Oxley Act (SOX) which significantly increased the accounting and internal control requirements for corporations.

Ans: T, LO: 4, Section: Career Opportunities in Accounting, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Communication, IMA: Reporting and Control

MULTIPLE CHOICE QUESTIONS 44.

The sole proprietorship form of business organization a. must have at least two owners in most states. b. generally receives favorable tax treatment relative to a corporation. c. combines the records of the business with the personal records of the owner. d. is classified as a separate legal entity.

Ans: B, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Sole Proprietorship, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

45.

A business organized as a corporation a. is not a separate legal entity in most states. b. requires that stockholders be personally liable for the debts of the business. c. is owned by its stockholders. d. has tax advantages over a proprietorship or partnership.

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Corporation, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

46.

The partnership form of business organization a. is a separate legal entity. b. is a common form of organization for service-type businesses. c. enjoys an unlimited life. d. has limited liability.

Ans: B, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Partnership, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 47.

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Which of the following is not one of the three forms of business organization? a. Corporation b. Partnership c. Proprietorship d. Investors

Ans: D, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Forms of Business Organization, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

48.

The main forms of business organizations include all of the following except a. limited liability corporation. b. partnership. c. sole proprietorship. d. corporation.

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Forms of Business Organization, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

49.

Most business enterprises in the United States are a. proprietorships and partnerships. b. partnerships. c. corporations. d. government units.

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Sole Proprietorship, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

50.

A business organized as a separate legal entity is a a. corporation. b. proprietor. c. government unit. d. partnership.

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Corporation, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

51.

Which of the following is not an advantage of the corporate form of business organization? a. No personal liability b. Easy to transfer ownership c. Favorable tax treatment d. Easy to raise funds

52.

An advantage of the corporate form of business is that a. it has limited life. b. its owner’s personal resources are at stake. c. its ownership is easily transferable via the sale of shares of stock. d. it is simple to establish.

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Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

53.

Which of the following has the advantage of enabling a business to raise funds most easily? a. Entity b. Sole proprietorship c. Corporation d. Partnership

54.

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships? a. Reduced legal liability for investors b. Harder to transfer ownership c. Lower taxes d. Most common form of organization

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Forms of Business Organization, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

55.

Which of the following set of characteristics describes a corporation? a. Shared control, tax advantages, increased skills and resources b. Simple to set up and maintains control with founder c. Easier to transfer ownership and raise funds, no personal liability d. Harder to raise funds and gives owner control

56.

A small neighborhood barber shop that is operated by its two owners would likely be organized as a a. joint venture. b. partnership. c. corporation. d. proprietorship.

Ans: B, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Partnership, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

57.

A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate? a. Ability to raise capital for expansion b. Desire to limit the owner’s personal liability c. The prestige of operating as a corporation d. The ease in transferring shares of the corporation’s stock

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Corporation, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

58.

All of the following are advantages for organizing a business as a sole proprietorship except a. a sole proprietorship is a simple form of business to set up. b. a sole proprietorship gives the owner control of the business. c. a sole proprietorship receives more favorable tax treatment. d. a sole proprietorship allows for an easy transfer of ownership through stock sales.

Ans: D, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Sole Proprietorship, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 59.

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Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt? a. Only Jack is personally liable for the debt, since he has been the managing partner during that time. b. Only Jill is personally liable for the debt of the business, since Jack has been working and she has not. c. Both Jack and Jill are personally liable for the business debt. d. Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Sole Proprietorship, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

60.

Hybrid forms of business organization include a. limited liability companies. b. sole proprietorships. c. partnerships d. all of these are hybrid forms of business organization.

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Hybrid Forms of Organization, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

61.

Hybrid forms of business organization a. are not allowed in many states. b. account for the majority of U.S. business transactions. c. combine the tax advantages of corporations with the limited liability advantage of partnerships. d. combine the tax advantages of partnerships with the limited liability advantage of corporations.

Ans: D, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Hybrid Forms of Organization, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

62.

Which one of the following questions is most likely asked by an internal human resources director for the company? a. Which product line is most profitable? b. What price for our product will maximize the company income? c. What average pay raise is affordable for employees this year? d. Should any product lines be eliminated?

Ans: C, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Internal Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

63.

Which of the following are reports that accounting provides to internal users? a. Forecasts of cash needs for next year only b. Financial comparisons of operating activity alternatives only c. Both forecasts of cash needs and financial comparisons d. Neither forecasts of cash needs nor financial comparisons

Ans: C, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Internal Users, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

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Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

64.

Which of the following is the best description of an internal user of accounting information? a. Investors who use accounting information to decide whether to buy or sell stock b. Creditors, such as banks, that use accounting information to evaluate the risk of lending money c. Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits d. Managers who use accounting information to plan, organize, and run a business

Ans: D, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Internal Users, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

65.

An external user of accounting information like the Internal Revenue Service is most commonly known as a a. taxing authority. b. labor union. c. customer. d. regulatory agency.

Ans: A, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

66.

Types of data analytics include all of the following except a. prescriptive. b. predictive. c. authoritative. d. diagnostic.

Ans: C, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Data Analytics, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

67.

Predictive analytics can be used to answer the question a. “What is likely to happen?”. b. “Why did it happen?”. c. “What should we do about it?”. d. “What happened?”.

Ans: A, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Data Analytics, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

68.

Prescriptive analytics can be used to answer the question a. “What is likely to happen?”. b. “Why did it happen?”. c. “What should we do about it?”. d. “What happened?”.

Ans: C, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Data Analytics, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

69.

Descriptive analytics can be used to answer the question a. “What is likely to happen?”. b. “Why did it happen?”. c. “What should we do about it?”. d. “What happened?”.

Ans: D, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Data Analytics, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 70.

1-11

Diagnostic analytics can be used to answer the question a. “What is likely to happen?”. b. “Why did it happen?”. c. “What should we do about it?”. d. “What happened?”.

Ans: B, LO: 1, Source: Business Organization and Accounting Information Uses, Subsection: Data Analytics, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

71.

Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)? a. The Act calls for increased oversight responsibilities for boards of directors. b. The Act has resulted in increased penalties for financial fraud by top management. c. The Act calls for decreased independence of outside auditors reviewing corporate financial statements. d. The goal of the Act is to decrease the likelihood of unethical corporate behavior.

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Ethics in Financial Reporting, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

72.

Which of the following is not a step for solving an ethical dilemma? a. Identify the alternatives and weigh the impact of each alternative on various stakeholders. b. Certify the ethical accuracy of the financial information. c. Identify and analyze the principal elements in the situation. d. Recognize the ethical situation and issues involved.

Ans: B, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Ethics in Financial Reporting, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Professional Behavior, IMA: Reporting and Control

73.

What is the first step in solving an ethical dilemma? a. Weigh the impact of alternative solutions on various stakeholders. b. Identify the alternative solutions. c. Identify the stakeholders. d. Recognize an ethical situation and the issues involved.

Ans: D, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Ethics in Financial Reporting, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Professional Behavior, IMA: Reporting and Control

74.

Which of the following is the most appropriate definition of accounting? a. The information system that identifies, records, and communicates the economic events of an organization to interested users. b. A means of collecting information. c. The interconnected network of subsystems necessary to operate a business. d. Electronic collection, organization, and communication of vast amounts of information.

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Users and Uses of Accounting Information, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

75.

Which of the following would not be considered an internal user of accounting data for the Amazon? a. President of the company b. Production manager c. Merchandise inventory clerk d. President of the employees' labor union

Ans: D, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Internal Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

1-12

Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

76.

Which of the following groups uses accounting information primarily to insure that the entity is operating within prescribed rules? a. Investors b. Regulatory agencies c. Labor Unions d. Management

Ans: B, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Professional Behavior, IMA: Reporting and Control

77.

The users of accounting information charged with achieving the goals of the business are its a. auditors. b. investors. c. managers. d. creditors.

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Internal Users, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: Industry/Sector Perspective, AICPA AC: None, AICPA PC: Decision Making, IMA: Reporting and Control

78.

Which external group uses accounting information to determine whether the company can pay its obligations? a. Investors in common stock b. Marketing managers c. Creditors d. Chief Financial Officer

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

79.

Which external group uses accounting information to determine whether the company’s operating performance might result in a stock price increase? a. Investors in common stock b. Marketing managers c. Creditors d. Chief Financial Officer

Ans: A, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

80.

Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective? a. Investors in common stock b. Marketing managers c. Creditors d. Chief Financial Officer

Ans: B, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Project Management, IMA: Reporting and Control

81.

Which of the following would not be considered an external user of accounting data for the Tesla Corporation? a. Internal Revenue Service agent b. Management c. Creditors d. Customers

Introduction to Financial Statements 82.

1-13

Which of the following would not be considered an internal user of Patagonia’s accounting data? a. The president of the company b. The controller of the company c. Creditor of the company d. Salesperson of the company

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Internal Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

83.

Which of the following is an example of a primary user of Walmart’s accounting information with a direct financial interest in the business? a. Taxing authority b. Creditor c. Regulatory agency d. Labor union

84.

Which of the following is a user of accounting information with an indirect financial interest in a business? a. A financial adviser b. Management c. Investor d. Creditor

85.

Which of the following is not considered an external user of accounting information? a. Finance directors b. Regulatory agencies c. Creditors d. Stockholders

86.

Which type of corporate information about Target Corporation is readily available to investors? a. Financial comparison of operating alternatives b. Marketing strategies for a product that will be introduced in eighteen months c. Forecasts of cash needs for the upcoming year d. Amount of net income retained in the business

Ans: D, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: External Users, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

87.

Which of the following statements concerning users of accounting information is incorrect? a. Management is considered an internal user. b. Present creditors are considered external users. c. Regulatory authorities are considered internal users. d. Taxing authorities are considered external users.

Ans: C, LO: 1, Section: Business Organization and Accounting Information Uses, Subsection: Users and Uses of Financial Information, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

1-14

Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

88.

External users of GameStop’s financial information want answers to all of the following questions except: a. Is the company earning satisfactory income? b. Will the company be able to pay its debts as they come due? c. Will the company be able to afford employee pay raises this year? d. How does the company compare in profitability with competitors?

89.

Which type of corporate financial information is not available to investors? a. Dividend history b. Forecast of cash needs for the upcoming year c. Cash provided by investing activities d. Beginning cash balance

90.

The liability created by Old Navy when it purchases cleaning supplies on credit from a supplier is termed a(n) a. account payable. b. account receivable. c. revenue. d. expense.

Ans: A, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

91.

The right to receive money in the future is called a(n) a. account payable. b. account receivable. c. liability. d. revenue.

Ans: B, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

92.

Which of the following is not a principal type of business activity? a. Operating b. Investing c. Financing d. Delivering

Ans: D, LO: 2, Section: The Three Types of Business Activity, Subsections: Financing Activities, Investing Activities, Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

93.

Borrowing money is an example of a(n) a. delivering activity. b. financing activity. c. investing activity. d. operating activity.

Ans: B, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 94.

1-15

Issuing shares of stock in exchange for cash is an example of a(n) a. delivering activity. b. investing activity. c. financing activity. d. operating activity.

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

95.

Debt securities sold to investors that must be repaid at a particular date some years in the future are called a. accounts payable. b. notes receivable. c. taxes payable. d. bonds payable.

Ans: D, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

96.

Which of the following activities involves obtaining the necessary funds to support the business? a. Operating b. Investing c. Financing d. Delivering

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Medium Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

97.

Which one of the following represents the typical order of occurrence of the three business activities for a new company? a. Financing, investing, operating b. Investing, financing operating c. Operating, investing, financing d. Financing, operating, investing

Ans: A, LO: 2, Section: The Three Types of Business Activity, Subsection: NA, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

98.

Buying assets needed to operate a business is an example of a(n) a. delivering activity. b. financing activity. c. investing activity. d. operating activity.

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Investing Activities, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

99.

Which activities involve acquiring the resources to run the business? a. Delivering b. Financing c. Investing d. Operating

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Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

100.

Which activities involve putting the resources of the business into action to generate a profit? a. Delivering b. Financing c. Investing d. Operating

Ans: D, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

101.

Where can an investor find information about operating activities in a company’s financial statements? a. On the statement of cash flows only b. On the income statement only c. On the statement of cash flows and the income statement d. On all four financial statements

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

102.

The statement of cash flows would disclose the payment of a dividend a. nowhere on the statement. b. in the operating activities section. c. in the investing activities section. d. in the financing activities section.

Ans: D, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

103.

Buying and selling products are examples of a. operating activities. b. investing activities. c. financing activities. d. delivering activities.

Ans: A, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

104.

Which of the following would not be considered an asset of Target Corporation? a. Cash b. Buildings c. Land d. Common Stock

Ans: D, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

105.

Expenses are incurred a. only on rare occasions. b. to produce assets. c. to produce liabilities. d. to generate revenues.

Introduction to Financial Statements 106.

1-17

The cost of assets consumed or services used is also known as a(n) a. revenue. b. expense. c. liability. d. asset.

Ans: B, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

107.

Resources owned by a business are referred to as a. stockholders’ equity. b. liabilities. c. assets. d. revenues.

108.

The best definition of assets is the a. cash owned by the company. b. collections of resources belonging to the company and the claims on these resources. c. owners’ investment in the business. d. resources belonging to a company that have future benefit to the company.

109.

Debts and obligations of a business are referred to as a. assets. b. equities. c. liabilities. d. expenses.

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

110.

Suppose that Forever 21 Company recorded the following cash transactions for the year: Paid $135,000 for salaries. Paid $60,000 to purchase office equipment. Paid $15,000 for utilities. Paid $6,000 in dividends. Collected $275,000 from customers. What was Forever 21’s net cash provided by operating activities? a. $125,000 b. $65,000 c. $140,000 d. $119,000

Ans: A, LO: 3, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control Solution: $275,000 − $135,000 − $15,000 = $125,000 (Cash coll. – sal. paid – util. paid)

1-18 111.

Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

Suppose that Ralph Lauren Company recorded the following cash transactions for the year: Paid $180,000 for salaries. Paid $80,000 to purchase office equipment. Paid $20,000 for utilities. Paid $8,000 in dividends. Collected $350,000 from customers. What was Ralph Lauren’s net cash provided by operating activities? a. $150,000 b. $70,000 c. $170,000 d. $142,000

Ans: A, LO: 3, Bloom: AP, Section: The Three Types of Business Activity, Subsection: Operating Activities, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control Solution: $350,000 − $180,000 − $20,000 = $150,000 (Cash coll. – sal. paid – util. paid)

112.

When expenses exceed revenues, which of the following is true? a. a net loss results b. a net income results c. assets equal liabilities d. assets are increased

Ans: A, LO: 3, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

113.

Which of the following is an asset? a. Mortgage payable b. Investments c. Common stock d. Retained earnings

Ans: B, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

114.

Which of the following is not a liability? a. Unearned Service Revenue b. Accounts Payable c. Accounts Receivable d. Interest Payable

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Operating Activities, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

115.

Which of the following is an investing activity for Target? a. Issuing shares of stock for cash b. Purchasing inventory c. Paying warehouse workers’ salaries d. Purchasing computer equipment

Ans: D, LO: 2, Section: The Three Types of Business Activity, Subsection: Investing Activities, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 116.

1-19

Which of the following is an investing activity for Patagonia? a. Purchasing materials to make clothing b. Paying for social media advertising c. Purchasing manufacturing equipment d. Paying executive salaries

Ans: C, LO: 2, Section: The Three Types of Business Activity, Subsection: Investing Activities, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

117.

Liabilities a. are future economic benefits. b. are debts and obligations. c. possess service potential. d. are things of value owned by a business.

Ans: B, LO: 2, Section: The Three Types of Business Activity, Subsection: Financing Activities, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

118.

Liabilities of a company are owed to its a. debtors. b. owners. c. creditors. d. stockholders.

119.

Stockholders’ equity can be described as claims of a. creditors on total assets. b. owners on total assets. c. customers on total assets. d. debtors on total assets.

120.

Payments to stockholders are called a. expenses. b. liabilities. c. dividends. d. assets.

Ans: C, LO: 2, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

121.

Which of the following financial statements is divided into major categories of operating, investing, and financing activities? a. The income statement b. The balance sheet c. The retained earnings statement d. The statement of cash flows

Ans: D, LO: 3, Bloom: K, Section: The Four Financial Statements, Subsection: Statement of Cash Flows, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

1-20 122.

Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

The retained earnings statement shows all of the following except: a. the amounts of changes in retained earnings during the period. b. the causes of changes in retained earnings during the period. c. the time period following the one shown for the income statement. d. beginning retained earnings on the first line of the statement.

Ans: C, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: K, Difficulty: Medium , Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

123.

Ending retained earnings for a period is equal to beginning a. Retained earnings + Net income + Dividends. b. Retained earnings – Net income – Dividends. c. Retained earnings + Net income – Dividends. d. Retained earnings – Net income + Dividends.

Ans: C, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control

124. Suppose that American Eagle Company's records show the following for the month of January: Total retained earnings at January 1 ........................................ $ 432,000 Total retained earnings at January 31 ...................................... 450,000 Total revenues ......................................................................... 2,160,000 Total dividends declared .......................................................... 140,000 How much are total expenses for January? a. $2,002,000 b. $2,318,000 c. $1,984,000 d. None of the answer choices are correct. Ans: A, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control Solution: $432,000 + $2,160,000 - $140,000 - $450,000 = $2,002,000 (Beg. RE + Revenues – Div. – End. RE)

125.

Suppose that at the beginning of January 2025, Walgreens had a balance in its Retained Earnings account totaling $42,000. At the end of the year, the balance totaled $47,000. If $11,000 of dividends were declared and paid during the year, what was 2025 net income? a. $5,000 b. $16,000 c. $53,000 d. $6,000

Ans: B, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control Solution: $47,000 + $11,000 - $42,000 = $16,000 (End,. RE + Div. – Beg.RE)

126.

Which of the following items will be reported on the Retained Earnings Statement? a. Cash received from customers b. Amounts received from issuing stock c. Amounts owed to creditors d. Profits earned by a company

Ans: D, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

Introduction to Financial Statements 127.

1-21

Which one of the following is not the correct date format for the respective financial statement? a. A balance sheet as of May 31, 2025 b. A Retained Earnings Statement as of May 31, 2025 c. An income statement for the month ended May 31, 2025 d. A statement of cash flows for the month ended May 31, 2025

Ans: B, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

128.

Which of the following statements is true? a. Amounts received from issuing stock are revenues. b. Amounts paid out as dividends are not expenses. c. Amounts paid out as dividends are reported on the income statement. d. Amounts received from issued stock are reported on the income statement.

Ans: B, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

129.

Dividends are reported on the a. income statement. b. retained earnings statement. c. balance sheet. d. income statement and balance sheet.

Ans: B, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

130.

Dividends declared and paid a. increase assets. b. increase expenses. c. decrease revenues. d. decrease retained earnings.

Ans: D, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

131.

The financial statement that summarizes the changes in retained earnings for a specific period of time is the a. balance sheet. b. income statement. c. statement of cash flows. d. retained earnings statement.

Ans: D, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

132.

To show how successfully its business performed during a period of time, Home Depot reports its revenues and expenses in the a. balance sheet. b. income statement. c. statement of cash flows. d. retained earnings statement.

Ans: B, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

1-22 133.

Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e

Net income results when a. Assets > Liabilities. b. Revenues = Expenses. c. Revenues > Expenses. d. Revenues < Expenses.

Ans: C, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

134.

Net income will result during a time period when a. assets exceed liabilities. b. assets exceed revenues. c. expenses exceed revenues. d. revenues exceed expenses.

Ans: D, LO: 3, Section: The Four Financial Statements, Subsection: Income Statement, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

135.

Retained earnings at the end of the period is equal to a. retained earnings at the beginning of the period plus net income minus liabilities. b. retained earnings at the beginning of the period plus net income minus dividends. c. net income. d. assets plus liabilities.

Ans: B, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

136.

Which of the following financial statements is concerned with the company at a point in time? a. Balance sheet b. Income statement c. Retained earnings statement d. Statement of cash flows

Ans: A, LO: 3, Section: The Four Financial Statements, Subsection: Balance Sheet, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

137.

The company’s policy toward dividends and growth could best be determined by examining the a. balance sheet. b. income statement. c. retained earnings statement. d. statement of cash flows.

Ans: C, LO: 3, Section: The Four Financial Statements, Subsection: Retained Earnings Statement, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and Control

138.

An income statement a. summarizes the changes in retained earnings for a specific period of time. b. reports the changes in assets, liabilities, and stockholders’ equity over a period of time. c. reports the assets, liabilities, and stockholders’ equity at a specific date. d. presents the revenues and expenses for a specific period of time.